Jan. 5 (Bloomberg) -- President Barack Obama’s nominees for
key positions at the Federal Reserve, Federal Deposit Insurance
Corp. and Comptroller of the Currency are at risk of becoming
collateral damage in an escalating fight between Senate
Democrats and Republicans.

Obama’s decision to use a recess appointment to install the
new director of the Consumer Financial Protection Bureau without
formal Senate approval could imperil the nominations for other
bank regulator jobs: Martin J. Gruenberg as head of the FDIC,
Thomas Hoenig, the FDIC’s nominee for vice-chairman and Thomas
J. Curry, Obama’s nominee to lead the OCC. All three were
approved by the Senate Banking Committee with bipartisan support
and have been awaiting final confirmation by the full chamber.

Also at stake are two nominations of Fed governors that
Obama announced last month: Jerome H. Powell, a former Treasury
Department official under President George H.W. Bush, and Jeremy
Stein, a Harvard University economist who has advised the
current administration.

Obama installed Richard Cordray, a former Ohio attorney
general, as CFPB director yesterday although the Senate had not
formally adjourned, angering Republicans who opposed creation of
the bureau.

“Breaking from this precedent lands this appointee in
uncertain legal territory, threatens the confirmation process
and fundamentally endangers the Congress’s role in providing a
check on the excesses of the executive branch,” Senate Minority
Leader Mitch McConnell, a Kentucky Republican, said in a
statement.

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Dodd-Frank Implementation

U.S. bank regulators are in the process of implementing
hundreds of rules required by the 2010 Dodd-Frank Act, which
overhauled financial regulation. Large banks, including Goldman
Sachs Group Inc., JPMorgan Chase & Co. and Bank of America
Corp., have been lobbying regulators as they work on rules that
include higher capital requirements and a ban on proprietary
trading.

Most Republicans have opposed the consumer bureau since its
inception. Earlier this year, opponents in the House and Senate
proposed bills that would restructure the new agency’s
governance and funding or abolish it entirely. Cordray, who has
been running the bureau’s enforcement division, has been blocked
as Republicans pushed for the changes.

The fate of those nominations has become cloudier in the
aftermath of Obama’s decision, said Mark Calabria, a former
senior aide to Senator Richard Shelby, the top Republican on the
Senate Banking panel.

‘Shuts Down’ Process

“You really do run the risk that this shuts down the
nominations process altogether,” Calabria, now director of
financial regulation studies at the Cato Institute, said in a
phone interview.

While the banking nominees have bipartisan support and will
likely move as a package on the Senate floor, “we’re in
unchartered waters at this point,” he said.

Obama administration officials said the president made the
appointment because Republicans refused to let the Senate hold a
simple majority vote on the nomination. While the Democrats
control 53 votes in the 100-member chamber, Senate leaders need
the approval of at least 60 senators to hold a vote.

Republican Opposition

In May, 44 Republicans -- led by Shelby and McConnell --
signed a letter vowing to block any nominee to head the bureau
until its leadership and funding structures are changed. A 45th
Republican signed onto the letter after it was sent.

A procedural vote on Cordray’s nomination failed in
December. After lawmakers left town for their winter break,
senators kept the chamber in “pro forma” sessions in an effort
to block a recess appointment.

Before they left, McConnell signaled that Republicans would
respond to a recess appointment by refusing to approve other
nominations. In a speech on the Senate floor, McConnell said he
was willing to move forward with a “package of nominations” as
soon as the administration confirmed it would “respect practice
and precedent on recess appointments.”

Republicans said there would be repercussions to the recess
appointment.

“Senators of both parties should be deeply troubled by the
President’s actions today -- actions which will come back to
haunt them,” Senator Orrin Hatch, a Republican from Utah, said
in a statement.

Senate Democrats and consumer advocates applauded the White
House move. Without a director in place, the consumer bureau
can’t supervise and regulate non-bank financial firms, such as
mortgage originators and payday lenders.

“This is a culmination of a long fight,” Travis Plunkett,
the director of legislative affairs for the Consumer Federation
of America, said in a conference call with reporters.